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Saturday, May 14, 2005

This isn't really a surprise, it has been coming for some time now. What isn't really clear is how China will react. It isn't at all evident that this will bring a floating of the yuan any nearer. It will also be interesting to see how the EU - who are also examining whether to initiate a similar quota process - will respond. It is not at all evident they they may not try and open a breach to sell "trains and boats and planes" etc. in enhanced quantities.

The Bush administration.... announced on Friday that it would impose new quotas on cotton shirts, trousers and underwear from that country...........The announcement came one day after President Bush met with the leaders of five Central American countries and the Dominican Republic to promote a trade pact with these nations that has stalled in Congress.

The textile industry has opposed the pact, the Central American Free Trade Agreement, as another threat to the American industry, but Mr. Johnson's organization broke with the other trade associations and endorsed the pact, known as Cafta, this week. Kimberly Elliott, a trade specialist at the Institute for International Economics, said that the administration undoubtedly reached a quick decision in favor of the American textile industry in part to win more support for Cafta. "The administration has been working the link between the safeguards and Cafta for some time, but I think they would have done this eventually even if Cafta didn't exist," Ms. Elliott said."If the administration is going to take a hit from China for this," she said, "it might as well get some benefit for Cafta."

Friday, May 13, 2005

The violence continues on a frightening basis in Iraq. I am not blogging much about this as I really do not know what to say or think. People are again speaking of a 'spike' following the election of the new government. But the underlying level of violence seems to continue unabated, and certainly from the outside you could get the impression of growing momentum with talks of uniformed insurgents etc.

In Iraq a barber works in a dangerous trade. Many have been murdered, beaten or forced to close their businesses by Islamic fanatics who accuse them of shaving off beards or giving Western-style haircuts.

"I did not take them seriously when they warned me against shaving off beards," lamented Mohammed Hassan al-Jebabi, once the owner of a barber's shop in a Sunni town on the outskirts of Baghdad. One day six men arrived in a pick-up truck. They shot into the air and took me away. After 12 days they dumped me back in front of my shop with my arms and legs broken. They said next time they would cut off my hands."

The fundamentalists, generally called Salafi or Wahabi in Iraq, believe it is un-Islamic for men to shave or for barbers to employ an ancient method of hair removal using a thread. Even trimming beards is seen as a crime against religion.

Most barber's shops in Sunni or mixed Shia and Sunni districts of Baghdad now carry a notice in the window saying: "We apologise to our customers but we are not shaving beards."

Now if it is not possible even to resist this basic level of intimidation, where do people expect change to come from?

Certainly in the background there is a lot of talk of civil war. It is impossible to say just how long the average Shiite or Kurd will resist the continuing campaign of provocation. John Cole kinks to a pretty pessimistic assessment in Newsday which suggests that the insurgents may be trying to encircle and cut off Baghdad. All in all, not a pretty picture.

The situation in Germany continues to be to cause concern since whilst Germany saw its strongest quarterly growth for four years, expanding by an unexpectedly-strong 1.0 per cent (or at an annual rate of 4%)the figure marked a rebound after a shallow, technical recession in the second half of last year. In particular the federal statistics office said that the improvement “was exclusively based on exports”.

The Italian problem, howevere, is becoming genuinely worrying.

"The unexpected fall in Italian gross domestic product will lead to fresh worries about the outlook for the eurozone economy, hit by higher oil prices and the euro's appreciation late last year. It is also a serious challenge to Italian prime minister Silvio Berlusconi's chances of winning re-election in Italy's next national elections, due by May 2006.

As member of the eurozone Italy cannot cut interest rates or devalue its currency as it has in previous significant downswings. The depth of the Italian recession “is a whole new ball game, we don't have any precedent for dealing with this,” said Julian Callow, economist at Barclays Capital."Source: Financial Times

The FT Deutschland is reporting that pressure on the European Central Bank to consider an interest rate cut is expected to come next week from the OECD.

According to FT Deutschland a draft OECD report says ECB interest rates should be kept on hold while the indicators remain mixed, but if the ECB's economic assessment moves clearly in either direction, monetary policy should react. The OECD has also revised down its forecasts for growth this year to 1 per cent in Germany and 1.6 per cent in the eurozone, compared with the 1.4 per cent and 1.9 per cent forecast in November.

In other words if the downside risks continue, arguments for cutting the rate will mount up. This will be a real first for the ECB, and the first major test of the euro, since monetary policy has been, to date, relatively uncontroversial. Keep watching this space.

Firstly: "Mobile phone users are to get access to television channels including Sky News, CNN, Cartoon Network and Discovery as part of a long-awaited British trial of handsets fitted with digital TV receivers". (source: the Guardian ).

Secondly: Tim Berners-Lee, inventor of the World Wide Web and director of the World Wide Web Consortium (W3C), announced the Mobile Web Initiative (MWI) in Japan.

"Mobile access to the Web has been a second class experience for far too long," he explained. "MWI recognizes the mobile device as a first class participant, and will produce materials to help developers make the mobile Web experience worthwhile." Source: webpronews

In a recent post on a Fistful of Euros about demography and immigration, I got into a debate about robots and how they might change things. Well, as I was speculating, it turns out that someone is developing robots which can make more robots. The person in question: Hod Lipson and his team at Cornell University:

"It makes one wonder about the future of robots and where it's going and what it means to philosophical debates today. When Asimov wrote I, Robot, could he have envisioned where things were going? He would seem fortuitous. Is the robotic future somewhat grim, like say the Terminator, where robots will eventually take over, hunt us down and try to eliminate humans or is it something a bit more optimistic like Data from Star Trek? He did have positronic brain. In either case, robots, like computers are only as good as there programming. One can only hope that the programmers put a little binary code in their ever-broadening scope of commands and abilities that merely says right or wrong."

Wednesday, May 11, 2005

The NYT's Jennifer Bayot puts a different spin on the data referred to in my last post. Basically the trade reading is good news:

"An unexpected retreat in the United States' demand for imports trimmed the trade deficit in March to a six-month low, the government reported today, creating a far brighter picture of the economy than previous data suggested."

The reason for this view? Well second quarter GDP estimates are being hurriedly revised upwards, and just maybe the long term 'adjustment' of the dollar is finally having an impact.

""Coupled with last week's employment report showing a surprise surge in hiring last month, today's data suggest that warnings of a slowdown in the economy may have been hasty.

"It was such an abrupt decline in imports," said Mickey Levy, chief economist at Banc of America Securities. "One of the critical questions for the economy is, 'Is this the beginning of a turn in the trade trends?'""

I'm not so sure. True exports also went up by 1.5% but this was partly a result of aircraft sales which may also be volatile on a month by month basis. The drop in demand for imports could be good or bad depending, we need to wait and see, but maybe like the above quoted Mickey Levy I'm just letting my critical faculties work too hard. Maybe the simpler explanation is the good one:

After all, Mr. Levy noted, other economic reports for March had showed a much bleaker picture than today's data, including that companies were stockpiling inventories while consumers were buying less. "It may be just too big a decline to reconcile with all the other data," Mr. Levy said. "But maybe I'm overanalyzing it."

Two pieces of news from the US today may well be related. The FT reports on on data from the US Employment Cost Index. This shows that core inflation rose 3.1 per cent in the year to March whilst salaries climbed just 2.4 per cent.Whatsmore in the final three months of 2004, real wages fell by 0.9 per cent.

"The last time salaries fell this steeply was at the start of 1991, when real wages declined by 1.1 per cent......

Many economists believe that in spite of the unexpectedly large rise in job creation of 274,000 in April, the uneven revival in the labour market since the 2001 recession has made it hard for workers to negotiate real improvements in living standards.

Even after last month's bumper gain in employment, there are 22,000 fewer private sector jobs than when the recession began in March 2001, a 0.02 per cent fall. At the same point in the recovery from the recession of the early 1990s, private sector employment was up 4.7 per cent."

Meantime todays news on the trade deficit front shows that imports into the United States fell by 2.5% in March when compared with February. Particularly noteworthy was the drop in imports from China. Could it be that continuing high oil prices and slow earnings growth are finally eating away the vitals of the principal pillar of the global economy, the US consumer? Clearly it is impossible to decide on the basis of one months data, but still.....

"The U.S. trade deficit narrowed unexpectedly to $55.0 billion in March in the largest drop in over three years, as exports hit a record and imports from China declined, a government report showed on Wednesday.

The 9.2 percent plunge in the deficit defied Wall Street forecasts. Analysts had expected high oil prices and a flood of clothing from China to push the monthly trade gap to around $61.5 billion, which would have been a new record........

Imports of clothing, textiles and related goods from China fell 21.2 percent during March after a 9.8 percent increase in February. But imports of those products in the first three months of the year are 54 percent higher than last year, as the result of a surge in January when quota restrictions on textile imports expired.

Total imports from China declined 4.4 percent to $16.2 billion in March. That helped cut overall imports by 2.5 percent to $157.2 billion -- the largest monthly drop since December 2001, the same as the trade gap."

Tuesday, May 10, 2005

These are children, almost always babies, who are taken and raised by wild animals. Occasionally they find their way back to society. They may be carried off from their villages by females to replace recently lost cubs, accidentally separated from their families during migrations or other movements, or possibly exposed in the wild as a form of infanticide/birth control.

Almost all examples are either fictional (such as Tarzan and Mowgli) or legendary (such as Afrasiab, King of Turan, in the Shah-nama; King Zahhak of Mesopotamia in the Avestas, Nebuchadnezzar II, Romulus and Remus, Cyrus the Great and Bear Woman). There seem to have been a few fairly well-authenticated examples in the real like Victor, the "Wild Boy of Aveyron" in France, who was first sighted in 1797 aged about nine and died in 1828. These 'real life' examples have normally been hotly disputed, but news today arrives of yet another case:

"A dog foraging for food retrieved an abandoned baby girl in a forest in Kenya and carried her to its litter of puppies, according to media reports yesterday.

The stray dog carried the infant across a busy road and a barbed wire fence in a poor neighbourhood in the Ngong Forests area of the capital, Nairobi, a witness, Stephen Thoya, told the independent Daily Nation newspaper.

The dog apparently found the baby on Friday in the plastic bag in which she had been abandoned, said Aggrey Mwalimu, the owner of the compound where the dog is now living."

Serhan Cevic continues to wax lyrical about the Turkish 'economic miracle' and certainly the results continue to be impressive. As he argues Turkey has certainly broken the strong negative correlation between volatility and growth. Turkey seems to have achieved something of a structural break in this cycle:

"thanks to structural reforms and prudent policy management after the 2001 crisis, the country has entered a new era shaped by not just a single-digit inflation rate but also a sustained moderation of inflation and output volatility that, in our opinion, constitutes a major macroeconomic development."Serhan Cevic: Morgan Stanley Global Economic Forum

Turkey’s inflation rate stands today at 8.2%, down from an average of 77.5% in the 1990s, whilst the central bank base rate is at 15%. These numbers are obviously still pretty high, but they are steadily coming down to earth. There is little doubt that this is one of the success stories for the IMF structural reforms, but I can't help asking myself just what share in this success could be placed on the virtuous circle general global liquidity environment and the relatively lower interest rates that this generally makes possible.

Monday, May 09, 2005

News today suggest that US second quarter growth forecasts have been 'reduced' to 3.2%, and I've finally found the Brad DeLong link I was looking for. Brad's link was in fact a link to David Altig's blog, but still: the point is, as Altig suggests: who would ever have have imagined that a growth estimate reducing to a 3.2% annual growth rate could be seen as bad news. Over here in Europe these kind of numbers would have us jumping up and down with glee. (Altig, BTW, was talking about the 3.1 % first quarter numbers, but the point still stands).

Browsing through Brad DeLong's blog (looking for something else) I came across an astonishing post on Gunter Grass. I have always seen Grass as part of a trio with Enzensberger and Heinrich Boll. Personally, as a writer, I prefer Boll to Grass, and certainly in the 70's and 80's they may well have been ambiguous in the context of the rise of RAF terrorism. They may indeed be many things, but crypto nazis! Incredible. Still Brad has the courage to let 100 odd commentators tear him apart. If you get it wrong at least do it in style, by getting it wrong bigtime.

Amongst the many things in Grass's article which preoccupy would be this:

"Now, I believe that our freely elected members of Parliament are no longer free to decide. The customary party pressures are not particularly present in Germany; it is, rather, the ring of lobbyists with their multifarious interests that constricts and influences the Federal Parliament and its democratically elected members, placing them under pressure and forcing them into disharmony, even when framing and deciding the content of laws. Consequently, Parliament is no longer sovereign in its decisions. It is steered by the banks and multinational corporations - which are not subject to any democratic control".

This kind of thing could be put to use demogogically by those who would destroy democracy, but it isn't so far from what many 'left' intellectuals were saying in the 70's.

Again the following quote struck me as absolute 'foaming at the mouth' nonsense, but a defence of the holocaust?:

"But are our parliamentarians still sufficiently free to make a decision that would bring radical democratic constraint? Or is our freedom now no more than a stock market profit?

We all are witnesses to the fact that production is being demolished worldwide, that so-called hostile and friendly takeovers are destroying thousands of jobs, that the mere announcement of measures like the dismissal of workers and employees makes share prices rise, and this is regarded unthinkingly as the price to be paid for "living in freedom."

The consequences of this development disguised as globalization are clearly coming to light and can be read from the statistics. With the consistently high number of jobless, which in Germany has now reached five million, and the equally constant refusal of industry to create jobs, despite demonstrably higher earnings, especially from exports, the hope of full employment has evaporated."

It is easy to see what Brad would be worried about here, but I think, at least for the time being, he has gone one bridge too far.

Blimey, Morgan Stanley's Andy Xie had an interesting post about the renminbi last Friday. Basically Xie doesn't think a revaluation is to be expected in the near future. It is the reason why he thinks this that is interesting: he thinks it is the expectation – not the reality – of imminent Rmb revaluation that is in China’s interest at present. Xie feels a revaluation may cause a lot of hot money to leave and, hence, the property market to collapse. On the other hand, elevated expectations of imminent Rmb appreciation could prevent panic selling and help stabilize the property market. Certainly full marks for being original.

I have been posting over at Afoe about two issues which seem to suggest that the era of effective US policy autonomy might begin to come to an end. The first of these is the possibility of a rate cut later in the year over at the ECB. This is of course by no means clear, but if it were to happen then it is not clear that it would be *so* easy to keep raising US rates.

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About

Edward 'the bonobo' is a Catalan economist of British extraction based in Barcelona. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource".

Apart from his participation in A Fistful of Euros, Edward also writes regularly for the demography blog Demography Matters. He also contributes to the Indian Economy blog . His personal weblog is Bonobo Land . Edward's website can be found at EdwardHugh.net.